Information Technology (IT) Project Planning: Developing the Business Case for Requesting Project Funds.

1. CATEGORY: Strategic Planning > IT Project Planning
Management Skills Training Guide
Category: Strategic Planning
IT Project Planning
Developing the Business Case
for Requesting Project Fund$.

2. About the Speaker
Richard “Ric” Frederick
Project Management Professional (PMP)
Microsoft Certified Professional (MCP)
www.linkedin.com/in/rfrederick
www.pm-essentials.com
Assured Solutions::PM-Essentials
Rfrederick.pmp@gmail.com

3. Executive Summary
IT Governance is the Structured Oversight
(select, control, evaluate) executives perform to
Situation:
ensure the alignment of IT investment with
Strategic Priorities.
Because of poor methodology, a lot of time is wasted
Problem:
on good ideas that ultimately do not get funded.
Utilizing the Project Management International (PMI®)
- Project Management Body of Knowledge (PMBOK®)
Solution:
as the basis for planning IT projects can help IT
Managers write a more credible business case.
Nine (9) Knowledge Areas and the Project Planning
How It Works:
Process.
Improve the Opportunity for funding Capital Budget
Benefits:
requests.
Next Steps: One (1) Hour IT Planning Webinar

4. What are Projects?
What are Projects?
• Groups of Business Activities…
• Required to Transform Knowledge
into Wealth…
• For Maximizing Return on
Investment…
• Of Owner’s Equity or Net Worth…
• By a Specific Target Date.

5. Groups of Business Activities…
Groups of Business Activities…
Operations
(Manage the
Work)
Sales
Service Accounting
(Get the
(Do the Work) (Get Paid)
Business)

6. Required to Transform Knowledge into Wealth…
Required to Transform Knowledge
Into Wealth…
Process
Operations
(Manage the
Work)
Input Output
Sales
Service Accounting
(Get the
(Do the Work) (Get Paid)
Business)

7. For Maximizing Return on Investment…
For Maximizing
Return on Investment…
Return on Investment =
(Productivity) x (Efficiency)
Productivity = Efficiency =
(Total Revenue) / (Total Assets) (Total Profit) / (Total Revenue)

8. Of Owner’s Equity or Net Worth…
Of Owner’s Equity,
Or Net Worth…
What What What’s
You You Left.
Own Owe
(Assets) - (Liabilities) = NetWorth

9. By a Specific Target Date.
By a Specific Target Date…
RATE YEARS RATE YEARS RATE YEARS RATE YEARS
72 12 6.55 4.5
1% years 6% years
11% years
16% years
36 10.3 6 4.24
2% years
7% years
12% years
17% years
24 9 5.54 4
3% years
8% years 13% years
18% years
18 8 5.14 3.79
4% years
9% years 14% years
19% years
14.4 7.2 4.8 3.60
5% years
10% years 15% years
20% years
“Rule of 72”

10. OVERVIEW
Situation Problem Solution How It Works Benefits Next Steps
Situation
Problem
Solution
How It works
Benefits
Next Steps

11. OVERVIEW
Situation Problem Solution How It Works Benefits Next Steps
Situation
Problem
Solution
How It works
Benefits
Next Steps

12. SITUATION > Executive Scrutiny
Situation Problem Solution How It Works Benefits Next Steps
Executive Scrutiny
• Because of increased
IT Governance transparency (Sarbanes-
Do More with Less Oxley) and accountability
(Clinger-Cohen Act)...
Manage for Value
• Executives at public
Time Value of Money institutions, U.S. Corporations
Cost of Capital
and Government Agencies,
are under increasing scrutiny
ROI to wisely manage the capital
Capital Budgeting entrusted to them by
stockholders and tax payers.

13. SITUATION > IT Governance
Situation Problem Solution How It Works Benefits Next Steps
• IT Governance is the structured
Executive Scrutiny
oversight (Select, Control, Evaluate)
IT Governance that executives perform to ensure
the alignment of IT investments with
Do More with Less strategic priorities.
Manage for Value • According to the Federal CIO Council
committee on Capital Planning and
Time Value of Money IT Investment, there are sixteen
(16) success factors associated with
Cost of Capital
the selection of Information
ROI Technology.
Capital Budgeting

14. SITUATION > Federal CIO Council > 16 Success Factors
Situation Problem Solution How It Works Benefits Next Steps
2. Defined business, technical,
Executive Scrutiny 1. Establish corporate decision
and management goals and
making infrastructure.
objectives.
IT Governance 3. Involve functional level IT 4. Integrated IT planning cycle
executives. with agency budget cycle.
Do More with Less 6. Developed portfolio
5. Use of Scorecards.
management approaches.
7. Active, energized investment 8. Analyzed multiple investment
Manage for Value review board. risk categories.
10. Predicted benefits of
Time Value of Money 9. Use of Raines Rules and
investment that accrue in the near
guiding principles.
term rather than 3-5 years.
Cost of Capital
11. Standardized reporting 12. Exercised a practical "make
formats. sense" approach.
ROI 13. Exercised flexibility where 14. Develop criteria for applying
appropriate. decision making.
Capital Budgeting 15. Incorporated lessons learned 16. Use mission based
into process. performance measure.

15. SITUATION > “Do More With Less”
Situation Problem Solution How It Works Benefits Next Steps
Executive Scrutiny
• With Executives under
IT Governance scrutiny, Functional IT
Do More with Less Managers are increasingly told
to “do more with less.”
Manage for Value
• Already challenged with the
Time Value of Money requirements of managing
Cost of Capital
technology, these managers
need a better way to “manage
ROI for value.”
Capital Budgeting

16. SITUATION > Manage for Value
Situation Problem Solution How It Works Benefits Next Steps
Executive Scrutiny
• Manage for Value
IT Governance
– Time Value of Money
Do More with Less
Manage for Value
– Cost of Capital
Time Value of Money – (ROI)Return on
Invested Capital
Cost of Capital
ROI
– Capital Budgeting
Capital Budgeting

17. SITUATION > Time Value of Money
Situation Problem Solution How It Works Benefits Next Steps
Executive Scrutiny
IT Governance
“A dollar ($) today
Do More with Less is worth more
Manage for Value
than
Time Value of Money
Cost of Capital a dollar ($)
ROI
tomorrow.”
Capital Budgeting

18. SITUATION > Time Value of Money
Situation Problem Solution How It Works Benefits Next Steps
Executive Scrutiny
• How do You improve
IT Governance
Your Standard of
Do More with Less
Living?
Manage for Value
1. Save Your Money.
Time Value of Money
Cost of Capital
2. Invest Your Money.
ROI 3. Start a Business.
Capital Budgeting

19. SITUATION > Time Value of Money
Situation Problem Solution How It Works Benefits Next Steps
Risk/Return
Business
Investing
Savings
Time
0
Inflation
Risk/Return

20. SITUATION > Cost of Capital
Situation Problem Solution How It Works Benefits Next Steps
Executive Scrutiny • If I invest (lend) a ($)
IT Governance dollar with you today…
Do More with Less
1. When will you give it
Manage for Value back to me?
Time Value of Money
2. How much will you pay
Cost of Capital
me (INTEREST) for the
ROI
use of my ($) dollar.
Capital Budgeting

21. SITUATION > Cost of Capital
Situation Problem Solution How It Works Benefits Next Steps
Executive Scrutiny • Interest Paid to a Lender or
IT Governance Dividends Paid to an
Do More with Less Investor is the “Cost of
Manage for Value Capital” to a Company.
Time Value of Money
• The Cost of Capital is what
Cost of Capital
a Business REPAYS its
ROI
Lenders or RETURNS to its
Capital Budgeting
Owners.

22. SITUATION > (ROI) Return On Invested Capital
Situation Problem Solution How It Works Benefits Next Steps
Executive Scrutiny
• The SOLE Reason Companies Exist
is to:
IT Governance
Do More with Less
– MAXIMIZE the (ROI)
Return On Invested Capital
Manage for Value
– Which is placed “At-Risk”
Time Value of Money
by the Owner(s) and
Cost of Capital
Investor(s)
ROI
– In Excess of the Company’s
Capital Budgeting Cost of Capital.

23. SITUATION > (ROI) Return On Invested Capital
Situation Problem Solution How It Works Benefits Next Steps
Dupont ROI
Return on Invested Capital
Return on Investment =
(Productivity) x (Efficiency)
Productivity = Efficiency =
(Total Revenue) / (Total Assets) (Total Profit) / (Total Revenue)

24. SITUATION > (ROI) Return On Invested Capital
Situation Problem Solution How It Works Benefits Next Steps
• Productivity is a Ratio of
Executive Scrutiny
Output to Input.
IT Governance
• In Financial terms, this is the
Do More with Less ratio of sales to investment
and represents the ability to
Manage for Value
generate revenue for a given
Time Value of Money level of assets.
Cost of Capital • How many sales ($) dollars can
I GENERATE from one (1$)
ROI
dollar of assets?
Capital Budgeting

25. SITUATION > (ROI) Return On Invested Capital
Situation Problem Solution How It Works Benefits Next Steps
Executive Scrutiny • Efficiency is a measure of a
company’s ability to CONTROL
IT Governance
EXPENSES at a given level of
Do More with Less activity.
Manage for Value
• In Financial terms, this is the
ratio of earnings (net income)
Time Value of Money to sales.
Cost of Capital • How much money can I RETAIN
from one (1$) dollar of sales?
ROI
Capital Budgeting

26. SITUATION > (ROI) Return On Invested Capital > Chart of Accounts
Situation Problem Solution How It Works Benefits Next Steps
Chart of Accounts
Account Number Account Financial Statement Normal Sign Description
1-0000 Assets Balance Debit Total Capital
Sheet
2-0000 Liabilities Balance Credit Source
Sheet of Capital
3-0000 Equity Balance Credit Source
“Net Worth” Sheet of Capital
4-0000 Income Income Credit Sales Income
Revenue Statement
5-0000 Cost of Income Debit Production
Goods Sold Statement Costs
6-0000 Expenses Income Debit Overhead
Statement Costs

27. SITUATION > (ROI) Return On Invested Capital > RMA Diagram
Situation Problem Solution How It Works Benefits Next Steps
RMA Diagram
Account Account Financial Period Start 1st Period 2nd Period 3rd Period 4th Period Period End
Number Statement
4-0000 Revenue Income
Income Statement $2.78 $3.25 $3.78 $4.42
5-0000 Cost of Income 39% or
$1.27 $1.47 $1.72
Goods Sold Statement $1.08
6-0000 Expenses Income 55% or
Statement $1.53 $1.79 $2.08 $2.43
∆ Cash Flow Cash Flow 6% or
$0.19 $0.23 $0.27
$0.17
1-0000 Assets Balance
Sheet $1.00 $1.17 $1.36 $1.59 $1.86 $1.86
2-0000 Liabilities Balance
Sheet .50 .50 .50 .50 .50 .50
3-0000 Net Balance
Worth
Sheet .50 .67 .86 1.09 1.36 $1.36

28. SITUATION > (ROI) Return On Invested Capital
Situation Problem Solution How It Works Benefits Next Steps
• The SOLE Reason Companies Exist is to
Executive Scrutiny
MAXIMIZE the (ROI) Return On Invested
IT Governance Capital which is placed “At-Risk” by the
Owner(s) and Investor(s) in Excess of
Do More with Less
the Company’s Cost of Capital.
Manage for Value
• Those of you who work in a business are
Time Value of Money Responsible to the Owner’s for insuring
Cost of Capital that their CAPITAL BUDGETED for the
purchase of Assets and Projects
ROI
generates a return which is greater than
Capital Budgeting the cost of that capital.

29. SITUATION > Capital Budgeting
Situation Problem Solution How It Works Benefits Next Steps
• The Process and Tools used
Executive Scrutiny
for Evaluating the Desirability
IT Governance of Long-term Assets and
Do More with Less
Projects.
• Insures that EVERY Project
Manage for Value
purchased or performed by
Time Value of Money the company generates cash
Cost of Capital
flows which exceed the cost
of the project by more than
ROI the company’s cost of capital.
Capital Budgeting

30. SITUATION > Capital Budgeting
Situation Problem Solution How It Works Benefits Next Steps
Period Start 1st Period 2nd Period 3rd Period 4th Period
Cash
Flows -$1.00 $2.78 $3.25 $3.78 $4.42
Cost of
Capital 10%
.27 Years
Break
Even 3.5
Months
NPV $9.16
Efficiency
Profitability
916%
ROI

31. OVERVIEW
Situation Problem Solution How It Works Benefits Next Steps
Situation
Problem
Solution
How It works
Benefits
Next Steps

32. PROBLEM > Capital is Scarce
Situation Problem Solution How It Works Benefits Next Steps
• In today’s business climate,
Capital is Scarce
capital is scarce and the stakes
Poor Methodology could not be any higher. Waste
Good Ideas. Wasted Time.
money, lose your job.
• In order to do their jobs,
functional IT managers must
“run the gauntlet” of IT
governance to receive funding
for capital projects.

33. PROBLEM > Scope, Methodology, & Business Case
Situation Problem Solution How It Works Benefits Next Steps
• Functional IT Managers are
Capital is Scarce
focused on Functional IT
Poor Methodology Requirements.
• Requests for Capital FAIL
Good Ideas. Wasted Time. because:
– Project SCOPE Not Directly Tied to
Strategic Plan.
– Poor METHODOLOGY Drives Invalid
Assumptions (Outcomes, Risks,
Benefits, etc.).
– Project Plan does not include a
Strong BUSINESS CASE.

34. PROBLEM > Good Ideas. Wasted Time
Situation Problem Solution How It Works Benefits Next Steps
• IT Managers and their staffs
Capital is Scarce
have good ideas.
Poor Methodology
• However, they waste a lot of
Good Ideas. Wasted
Time.
time building strong technical
documentation that never gets
Executive Sponsorship.
• What’s needed is A PROCESS to
tie their technical knowledge into
a Scope, Methodology, Business
Case Model.

35. OVERVIEW
Situation Problem Solution How It Works Benefits Next Steps
Situation
Problem
Solution
How It works
Benefits
Next Steps

36. SOLUTION
Situation Problem Solution How It Works Benefits Next Steps
SCOPE + Methodology + Business Case

37. OVERVIEW
Situation Problem Solution How It Works Benefits Next Steps
Situation
Problem
Solution
How It works
Benefits
Next Steps

38. HOW IT WORKS > Scope > Financial Analysis
Situation Problem Solution How It Works Benefits Next Steps
Capital Markets (Lenders)
SCOPE
Liquidity: Current Ratio, Acid Test Ratio
Methodology Debt to Assets, Debt to Capitalization,
Leverage:
Debt to Equity
Interest Coverage, Principal and
Debt Service:
Interest Coverage
Business Case
Management
Return on Assets, Earnings Before
Profitability:
Interest and Taxes (EBIT)
Gross Margin, Profit Margin (Efficiency),
Operating Expenses, Profit Contribution
of Products, Asset Management, Asset
Operational Ratios:
Turnover (Productivity), Working
Capital, Inventory Turnover, Accounts
Receivable, Accounts Payable
Shareholders (Owners)
Return on Owners Equity (NetWorth),
Profitability: Return on Common Equity, Earnings
per Share
Price to Earnings (P/E) Ratio, Market to
Market Indicators:
Book Value Ratio
Cash flow per share, Dividends per
share, Dividend Yield, Payout to
Disposition of Earnings:
Retained Earnings Ratio, Dividend
Coverage

39. HOW IT WORKS > Scope > Strategic Planning (SWOT Analysis)
Situation Problem Solution How It Works Benefits Next Steps
Government Political Economic Cultural International
Regulations Parties Indicators Shifts Affairs
earnings
Capital capital budgets Program strategy
Finance Management
Markets Management shareholder
Shareholders
value
Labor human Human staff Design support Information
Markets resources Resources Engineering Services
Operations
material Stock Room supplies new products Distribution products
Suppliers equipment
Manufacturing
Purchasing services Order Entry
Testing services
Customers
customer
Sales &
Emerging changing Research & designs Business feedback orders
Marketing
Technologies technology Development Analysts
requirements
Customer
feedback
Competitors
products features services costs

40. HOW IT WORKS > Scope > Strategic Planning (SWOT Analysis)
Situation Problem Solution How It Works Benefits Next Steps
SCOPE
Methodology
Business Case Risk Risk
Probability
Risk
Risk
Risk
Risk
Risk
Impact

41. HOW IT WORKS > Scope > Scorecards
Situation Problem Solution How It Works Benefits Next Steps
SCOPE
Targets
Methodology Strategic Objectives Measurements Yr 1 Yr 2 Yr 3
Financial
Maximum Returns Return on Equity (%) 12 13 14
Business Case Utilization of Assets Utilization Rates (%) 7 8 9
Revenue Growth Change in Revenue (%) 11 11 11
External
Customer Retention Retention (%) 75 75 75
Customer Service Survey Rating (%) 85 88 90
Customer Relations Self Initiated Call (%) 35 40 45
Internal
Fast Delivery Turnaround Time (min) 15m 14m 13m
Effective Service 1st Time Resolution (%) 68 69 70
Optimal Cost Cost of Sales (%) 50 48 46
Resource Utilization Productivity Indicator (%) 60 62 64
Learning
High Skill Level Skill Set Ratio (%) 65 67 69
Employee Satisfaction Survey Rating (%) 85 88 90
Outstanding Leaders 5 Point Ranking 4.5 4.7 4.9

42. HOW IT WORKS > Methodology > PMI® Knowledge Areas
Situation Problem Solution How It Works Benefits Next Steps
SCOPE
Methodology Integration Scope Time
Management Management Management
Business Case
Cost Quality Resource
Management Management Management
Communication Risk Procurement
Management Management Management

43. HOW IT WORKS > Business Case Development
Situation Problem Solution How It Works Benefits Next Steps
SCOPE
Methodology
Subject and
Title and Subtitle To and From Date
Purpose
Business Case Overview
Executive
Disclaimer Introduction
Summary
Scope and Cost/Benefit Data Sources and
Methods Financial Metrics Assumptions
Business Benefits Model Methods
Case
Development
Impacts Financial Model Cash Flow Analysis of Non Financial
Statement Results Benefits
Risk Risk Analysis Sensitivity Contingencies and
Analysis Dependencies
Summary Conclusions Recommendations

44. OVERVIEW
Situation Problem Solution How It Works Benefits Next Steps
Situation
Problem
Solution
How It works
Benefits
Next Steps

45. BENEFIT > Results & Consequences
Situation Problem Solution How It Works Benefits Next Steps
Result: Consequence:
Contribution to Strategic Business Objective
Tangible but non financial benefit
Cash Inflow Net Benefit
Avoided Cost Cost Outcomes
Cost Decrease Cost Outcomes
Continuing Cost Cost Outcomes No Change
Cost Increase Cost Outcomes Net Cost

46. BENEFITS > Benefit Measurement
Situation Problem Solution How It Works Benefits Next Steps
Benefit Measurement
Step 1: Define a measurement for each benefit:
Benefit =>
Measurement to be used =>
Description of Measurement =>
Units of Measurement ($,%,etc)
Update Frequency:M for Monthly, Q for Quarterly, A for Annual, etc.
Degree of Reliability:V for Very Reliable, M for Medium Reliability, L for Low Reliability
Degree of usefulness in establishing objective - High, Medium or
Sets Objective:
Low
Ability to Benchmark:H for High, M for Medium, L for Low
Responsibility Location:Team, Project, Department, Manager, etc.
Degree of Fit:(within the organization) High, Medium or Low
Degree of Support:Available support (IT, Finance, etc.) in place - Yes or No
Step 2: Define the sources for the measurement:
Internal documents / reports
External documents / reports
Special studies
Programs
Databases
Other
Step 3: Define how the measurement is derived and “accounted “
for:
Calculation Required:
Assumptions in Calculation:
Availability of Data:Currently Available, Requires Research, Not Available

47. OVERVIEW
Situation Problem Solution How It Works Benefits Next Steps
Situation
Problem
Solution
How It works
Benefits
Next Steps

48. Next Steps
Situation Problem Solution How It Works Benefits Next Steps
Free Consultation.
Agree to Agree.
Initial Analysis.